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Papa John's audit committee reassesses accounting of JV agreements

In connection with a review of the company’s Annual Report on 2012 Form 10-K among the Audit Committee of the Company’s Board of Directors, and the company’s management, with the assistance of Ernst & Young LLP, the company’s independent registered public accounting firm, and the Company’s outside legal advisors, the Audit Committee has reassessed the accounting of the company’s joint venture agreements. On February 24, the Board of Directors, acting on the recommendation of the Audit Committee and management, concluded that the company should restate certain previously issued financial statements. In connection with the evaluation of the accounting for newly formed joint ventures in 2012, the company reviewed the accounting for its previously existing joint venture arrangements. As a result of the review, the company determined an error occurred in the accounting for one joint venture agreement, which contained a mandatorily redeemable feature added through a contract amendment in the third quarter of 2009. This provision contained in the 2009 contract amendment was not previously considered in determining the classification and measurement of the noncontrolling interest. In addition, the company determined that an additional redeemable noncontrolling interest was incorrectly classified in shareholders’ equity and should be classified as temporary equity. As such, the company is restating its previously issued consolidated financial statements for the years ended December 25, 2011, December 26, 2010, and December 27, 2009 to correct the errors. In the Annual Report on Form 10-K for the fiscal year ended December 30, 2012, to reflect the appropriate measurement of the mandatorily redeemable noncontrolling interest, the Company will include a $3.7M charge, net of income taxes, to ending 2009 retained earnings in our consolidated statements of stockholders’ equity to adjust the previously reported balance to its redemption value as of December 27, 2009. Additionally, the company also will correct the classification errors of its redeemable noncontrolling interests from permanent equity to either other long-term liabilities or redeemable noncontrolling interests in the consolidated balance sheets, as detailed in the tables below. In the company’s 2009, 2010 and 2011 consolidated statements of income, interest expense, income tax expense and net income were affected as a result of adjusting the mandatorily redeemable noncontrolling interest to its redemption value. The impact of the restatements on the consolidated balance sheets, consolidated statements of income and consolidated statements of cash flows by year is outlined in the tables below. The corrections had no impact on total revenues, operating income or operating cash flows and had no impact on the company’s compliance with debt covenants in any periods presented.